Question

Find the present value of annuity if a) the withdrawal is to be $500 per month for 36 months at 4% compounded monthly b) $1000 per year for 3 years at 3% compounded annually.

Answer 1

Monthly:

We are given the following information:

PMT	$500.00
r	4.00%
n	3
frequency	12

We need to solve the following equation to arrive at the required PV:

1-(1+ -)-пхirequency frequency PV = PMTX frequency

1-(1 + 0.01) -3x12 PV = 500 x 0.04

PV = 16935.38

So the PV is $16935.38

Annual:

We are given the following information:

PMT	$1,000.00
r	3.00%
n	3
frequency	1

We need to solve the following equation to arrive at the required PV:

1-(1+r)-n PV = PMT X-

PV = 1000 x 1-(1 + 0.03) -3 0.03

PV = 2828.61

So the PV is $2828.61